Hedge fund Fansanara Capital believes that financial markets are currently overly optimistic about a lackluster global economy. The firm’s four “conviction ideas” for the next year are all bearish ones.
“As we re-assess the validity of the underlying risks, we expect a shift in narrative in the few months ahead and a sizeable sell-off for risk assets,” the report read.
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Here’s a look at Fansanara’s four trade ideas for the next year:
1. Short the Chinese Renminbi: Borrowing 10 percent of GDP without currency adjustment is unsustainable in the long-term. To execute this idea, consider shorting the Wisdom Tree Dreyfus Chinese Yuan Fd (ETF) CYB.
2. Short Oil: Soft demand and growing supply will ultimately result in a volatile path to sub-$10/bbl oil in coming years. Consider shorting the United States Oil Fund LP (ETF) USO.
3. Short S&P: The S&P 500 is priced to perfection, leaving little possibility for upside and huge potential downside. Consider shorting the SPDR S&P 500 ETF Trust SPY.
4. Short European Banks: Headwinds for European banks banks include negative-sloped interest rate curves, deeply negative interest rates, deflationary economies, depressed GDP growth, over-regulation and fintech. Consider shorting the Ishares MSCI Europe Fincls Sctr Indx Fd EUFN.
Disclosure: The author holds no position in the stocks mentioned.
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